In May 2010, Ofer Nimrodi made a daring bet when he led a group of investors in buying rights in two neighboring off-shore licenses, Myra and Sarah. The sellers, a group of anonymous Canadian investors incorporated under the name PetroMed Corporation, could not believe their luck when they received $16 million in cash for their rights to licenses that were about to expire. Today, these investors are probably kicking themselves for not asking for more.
Nimrodi was able to get an extension of the licenses and permission from the Petroleum Supervisor for the sale, hired an international drilling operator, and today announced an impressive report on a large discovery by one of the most highly regarded research companies in the field.
Nimrodi, Tzahi Sultan, Nochi Dankner, and the other partners in Myra and Sarah deserve praise for how quickly they entered the oil and gas exploration business. The capital market, based on how it currently prices Nimrodi's Israel Land Development Company Energy Ltd. (TASE: IE) and Dankner and Sultan's Modiin Energy LP (TASE:MDIN.L), is giving them full credit.
However, the difficulties facing them should not be forgotten as they try to wrest the gas from the bosom of the earth.
ILDC Energy's market cap climbed to NIS 1.5 billion today in the wake of the announcement, doubling in the past month alone, but the road to justifying such a value is still long and full of question marks. The estimates provided by Netherland Sewell & Associates Ltd. (NSAI) - with all due respect to its professional reputation -are no more than educated guesses and only exploratory drilling will reveal the truth.
An exploratory well will cost $150 million, which the licensees will have to raise. If they succeed, they will then have to invest a further $2-3 billion to develop the gas fields, based on costs of the Tamar field nearby. The drilling operator, GeoGlobal Resources Inc. (AMEX: GGR) is not an operator on the scale of Noble Energy Inc. (NYSE: NBL) (Delek Group Ltd. (TASE: DLEKG) partner in Tamar and Leviathan).
Although Nimrodi hopes to save on costs by linking up with Tamar's gas pipeline, it is not all certain whether such cooperation is possible since the Tamar partners plan to sell gas that will use the pipeline's entire capacity over the coming year.
Even if Myra and Sarah's partners overcome this obstacle, find gas and develop the field, they then face the next question: who will buy their gas? Delek and Noble Energy have had no problem in locking up the Israeli market for the coming decades, thanks to Yam Tethys, Tamar, Leviathan, and other fields, and it is not clear whether Myra and Sarah can compete with the prices that Delek and Noble Energy can offer.
Nimrodi and his partners are counting on Israel Electric Corporation (IEC) (TASE: ELEC.B22) to keep a place for them, in order avoid dependency on a single supplier (assuming that Egypt leaves the picture), but the three to four years time to market under the most optimistic scenarios for Myra and Sarah, could be a big problem.
To sum up, it is not all clear that Nimrodi, will be able to sell the gas he found (assuming it is verified) at the ease at which he sold the public shares in ILDC Energy.
Published by Globes [online], Israel business news - www.globes-online.com - on June 30, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011